The constitutional act of productive foreign investment has the purpose of establishing policies and procedures that regulate this type of operations.
In the Official Gazette of the Bolivarian Republic of Venezuela N° 41.310 dated December 29, 2017, the National Constituent Assembly published the Foreign Productive Investment Constitutional Act (hereinafter “the Act”) whose purpose and general provisions are summarized below:
- The purpose of the Act is to establish the principles, policies and procedures that regulate the productive foreign investment of goods and services, in any of its categories, in order to achieve the harmonization and sustainable development of the Nation.
- The special legislation that regulates foreign investments in specific sectors of the economy shall be applied with preference to this Act, being hydrocarbons, mining, telecommunications and social media legislation among them.
- Foreign investment is declared of public interest.
- The following are subject to the application of this Act:
- Foreign companies and their affiliates, subsidiaries or related companies, governed or not by international agreements and treaties, as well as other foreign organizations for economic and productive purposes that make investments in the territory of the Bolivarian Republic of Venezuela.
- Grand National Companies whose objectives and operations are subject to a strategic plan of two or more States, ensuring the role of the power of the people by running investments of mutual interest through public, joint ventures, association forms and joint management projects, thus strengthening solidarity between peoples and enhancing their productive development.
- Private, public and mixed domestic companies, and their affiliates, subsidiaries or those related to them, governed or not by international agreements and treaties, and other organizations with economic and productive purposes and recipients of foreign investment, under the legislation of the Bolivarian Republic of Venezuela.
- National natural persons qualified as residents or domiciled abroad and foreign natural persons residing abroad who make investments in the national territory.
- Foreign persons who are residing in the country and conducting foreign investments.
5. Jurisdiction: Foreign investments shall be subject to the jurisdiction of the courts of the Republic, in accordance with the provisions of the Constitution of the Bolivarian Republic of Venezuela and other Venezuelan Laws.
6. Foreign investment: It is the productive investment made through the contributions of foreign investors, made up of tangible and intangible resources, intended to be part of the patrimony of recipients of foreign investment in the country. There are two types of foreign investment: direct and portfolio.
- Foreign direct investment is the productive investment made through the contributions of foreign investors made up of tangible or financial resources, destined to be part of the patrimony of the recipients of foreign investment in the national territory, to benefit the productive process. These contributions must represent a participation equal to or greater than 10% of the capital stock.
- Foreign portfolio investment is the acquisition of shares or equity interests in all types of companies that represent a level of participation in corporate equity of less than ten percent (10%).
- All foreign investment must meet the following conditions:
-Contribute to the production of national goods and services in order to cover domestic demand, as well as the increase of non-traditional exports.
– Contribute to the national economic development and research and innovation capacities of the country.
– Participate in the policies dictated by the National Executive for the development of local suppliers.
-Have the endorsement of the Ministry of the Popular Power with competence on indigenous peoples, in order to authorize foreign investment, when its planned in the territories of the original settlers.
-Channel monetary resources from foreign investment made in Venezuela, through the national financial system.
– Participate in the national economic activity and its consequent link with the social life of the country, in its strictly economic nature of foreign investment.
– They cannot participate directly or indirectly in the national political debate or contribute directly or indirectly to the formation of opinions on topics of public interest in the media.
-Ensure the compliance of the external or internal credit contracts, entered with Venezuelan or foreign natural or legal persons of private or public law.
– Notify to the governing body the performance of any kind of investment in domestic or foreign companies, that are in the country, which have been made after the initial foreign investment registration through the purchase or transfer of shares or other titles, credits, mergers, acquisitions or any other way that does not involve real capital investment, but are of a financial nature. Any transaction of this nature that is carried out without the notification provided here will be considered void.
– Be subject to the national legislation in force on commercial, labor, tax, customs, environmental and all fields that arise during the foreign investment.
– Respond to the objectives of the national economy policies.
-Provide any other information required by the governing body in the exercise of its functions.
-Submit and demonstrate before the governing body the source of the financial or material resources subject of the investment. In the case of a national investor with foreign investment, they must demonstrate the antiquity of the ownership of said resources in the terms indicated in the Regulations of this Act.
-Comply with the rest of the duties established in this Act, its Regulations and other norms contained in the national legislation.
7. Foreign investor: The natural or legal person performing foreign investment registered with the governing body. Any Venezuelan natural or legal person, who directly or through intermediaries is listed as a shareholder of foreign companies, does not qualify as a foreign investor.
8. Foreign company: A foreign company is a commercial company whose share capital belongs in a percentage higher than fifty percent (50%) to foreign investors and is qualified as such by the governing body.
9. Governing Body: The Ministry of Popular Power with jurisdiction over foreign investment will be the governing body in terms of compliance with the purpose of this Act.
10.Minimum amount of foreign investment: In order to obtain the foreign investment registration, the contributions must be constituted at the official exchange rate in effect, for a minimum amount of eight hundred thousand euros (€ 800,000) or six million five hundred thousand renminbi ( ¥ 6,500,000) or its equivalent in another foreign currency. The governing body may establish a minimum amount for the incorporation of foreign investment that may not be less than ten percent (10%), taking into account the sectoral interest, promotion of small and medium industry, and other organizational forms of a productive economy.
11. Minimum permanence: To enforce the rights originated from this Act, the foreign investment must remain in the territory of the Republic for a minimum period of two (2) years from the date on which the Foreign Investment Registration has been granted. This period may increase in the foreign investment contract when the governing body considers it, after hearing the opinion of the competent body or entity, based on the predictability and productive stability requirements.
12. Value of the investment: The incorporation value of the foreign investment must be represented by assets that are one hundred percent (100%) within the country; composed by equipment, inputs or other goods and other tangible assets required for the start of the productive process. This value will be subject to an expert’s opinion to validate the value of the assets, which the governing body will review and issue the corresponding certificate, authorizing its value as an investment.
To state the real value of the foreign investment, the corporate capital items that were effectively disbursed during the respective fiscal year of the foreign investors will be computed.
The value of foreign investment, the reinvestments, and capital increases will be evidenced through the Foreign Investment Registration where the cash or currency value paid for all items in the investments will be accounted for, excluding the financing in the domestic market to which they have resorted.
13. Liquidation of taxes in foreign currencies: Companies whose income comes in more than seventy percent (70%) of the liquidation of traditional and mining exports have the obligation to settle the payments of taxes in foreign currency.
14.Internal Financing: The internal financing to which foreign investors resort for the establishment of their investments may not be greater than fifteen percent (15%) of the total amount of the investment.
15. Investment Contract: Foreign investment may enjoy favorable conditions, benefits or incentives if a foreign investment contract has been granted provided that the agreed objectives are met.
The foreign investment contract attached to the Foreign Investment Registration will be mandatory between the parties. If there is a public contract of international association, it will not be necessary to carry out an investment contract.
16. Remittance of profits or dividends: Foreign investors are entitled to remit abroad annually, and from the end of the first fiscal year up to one hundred percent (100%) of the proven profits or dividends that come from their foreign investment, registered and updated in freely convertible currencies, subject to the fulfillment of the purpose of the investment.
Only in cases of force majeure or extraordinary economic situations, the National Executive may reduce this percentage between sixty percent (60%) and eighty percent (80%) of the profits.
Foreign investors will have the right to remit to their country of origin, totally or partially, the monetary income obtained from the sale, within the country, of their shares and investments, as well as the amounts from capital reduction, upon payment of the corresponding taxes, in compliance with the minimum permanence period of the investment provisions established in this Act, the duties established by labor, business, environmental and national security regulations.
In the case of liquidation of the company, they can remit abroad the total amount of the foreign investment.
Remittances must be duly justified and presented to the governing body.
17. Control and auditing powers: The governing body has wide powers of control for verifying compliance with this Act and other regulations of the national legislation applicable to foreign investments.
18. Fines: Under the assumptions of omission or contravention of the duties established for foreign investments the governing body will fine up to two percent (2%) of the total investment made by the subjects of this Act, calculating the damage caused and the amount of the investment.
The concurrence in the breach of two or more duties by foreign investments increases the corresponding fine by one (1) percentage point. Likewise, the repetition of a breach entails the application of a new fine, increasing by three (3) percentage points the initial fine. The payment of the fine must be made in the monetary denomination of the investment.
In cases of obligations of foreign investors or foreign and receiving companies under this Act, the competent body or entity may estimate the suspension of favorable conditions, benefits or promotion incentives and stimulus to invest, calculating the seriousness of the damage caused.
19. Temporary, derogative, and final dispositions:
- The Decree with the Rank, Value and Force of Foreign Investment Act, published in the Extraordinary Official Gazette of the Bolivarian Republic of Venezuela No. 6,152, dated November 18, 2014, is hereby repealed. All legal and sublegal provisions that contradict the content of this Act are repealed.
- The National Executive must dictate the Regulations of this Act within ninety (90) days following the date of its publication in the Official Gazette of the Bolivarian Republic of Venezuela.
- The organs and entities of the State must adapt its structure and operation to the provisions of this Act within ninety (90) days following the date of its publication in the Official Gazette of the Bolivarian Republic of Venezuela.
- The bodies or entities with concurrent competencies in matters of foreign investments, shall adapt their respective norms and procedures to this Act within a period of one hundred and twenty (120) days following the date of its publication in the Official Gazette of the Bolivarian Republic of Venezuela.
- As of the publication of the Act in the Official Gazette of the Bolivarian Republic of Venezuela, any investment framework agreement or international commercial agreement on investments subscribed or renegotiated by the Bolivarian Republic of Venezuela shall be based on the provisions established in this Act.
- The Act will become effective as of its publication in the Official Gazette of the Bolivarian Republic of Venezuela.
This Legal Report presents a general description of the most relevant aspects of the Constitutional Act on Foreign Productive Investment and does not constitute a legal opinion directed to attend a specific situation. In case of any doubt, comment, or to obtain further information, please contact us through our website www.interjuris.com.
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